AHDB Pig Market Weekly

AHDB Pig Market Weekly - 23 October 2015

Pork marinades & shoulder are two bright spots for retail sales

Over the last 12 week period, ending 13 September, pork sales were down across all cuts except shoulder and ‘other cuts’ (due mainly to marinades). Pork continues to lose sales as consumers switch to fresh chicken, chilled ready meals and main meal accompaniments. Year on year, the levels of promotional activity by retailers were also down across most of the major cuts. Whilst overall sales were down, the Hard Discounters continued to buck the trend, accounting for a record 16% share of pork volume sales in the latest three months.

The amount of chops/steaks purchased continues to fall and was down by 2%, despite a fall in average retail prices, and this resulted in a 9% drop in expenditure. An increase in roasting joint purchases in the Hard Discounters was more than offset by declines in the Big 4 Grocers. However, pork shoulder enjoyed a 9% increase in volume sales, driven by a strong performance in the latest four weeks, when average prices fell by 10%.

Bacon volumes have remained stable compared with a year ago, as average prices dropped by 4% year on year. The Hard Discounters continue to perform strongly; by contrast, the Big 4 Grocers all saw sales decline. Premium sausages and low fat sausages were the only types to register growth in the latest 12 week period. Premium sausage growth was led by an increase in price promotions.

Global pork production forecast to grow slowly

Global pig meat production is estimated to total 111.5 million tonnes in 2015, an increase of 1% compared to last year, according to the latest global outlook report published by the US Department of Agriculture. Looking ahead to 2016, output is forecast to increase once again, by a small margin to 112.0 million tonnes. A slight decline from the EU will be offset by estimated increases from other countries, with production from Russia up by 6%. China continues to dominate pig production across the globe but it is forecast that production will decrease slightly in 2015 before regaining volumes in 2016. US production growth is expected to continue, although slowing significantly, from 8% in 2015 to just 1% next year. The Brazilian pork industry is estimated to grow further, with increases of 2% in both 2015 and 2016, as the country increases shipments to the Russian market.

After two consecutive years of declines, global pork exports are forecast to increase by 4% in 2015, reaching a total of 7.1 million tonnes. It is estimated that this will increase further into 2016, albeit by a smaller margin of 2%. The majority of next year’s growth is expected to be led by the US and Brazil, with exports ahead by 5% and 3% retrospectively. Imports to Japan, the world’s leading buyer of imported pork, are estimated to decrease by 5% in 2015 and a further 2% in 2016 as the country’s domestic production rebuilds after PEDv outbreaks in 2014. Of course, exports to Russia are also set to be much lower this year, with further falls next year. These falls are being offset by increased shipments to Mexico, China and South Korea, among others, although growth will be much lower next year.

UK pig prices

In week ended 17 October, the EU-spec SPP stayed the same week on week at 127.84p/kg. This price is the lowest since the SPP started in April 2014 and compared to the EU-spec DAPP series that ended in September 2014, represents the lowest price since June 2008. Supply and demand appear to have balanced out a bit more in week ended 17 October as estimated slaughterings decreased by 4% compared to a week earlier, at 175,300 head. Nevertheless, throughputs were up by 5% in comparison to the same week in 2014. The average SPP carcase weight for the same week recorded an increase of 340g to 82.53kg, the heaviest weight since mid-March. Furthermore, compared to the same week in 2014 the average carcase weight was 310g heavier year on year.

The EU-spec APP fell for the sixth consecutive week, by 0.74p to 132.34p/kg, in week ended 10 October. The price remains 25p/kg down on the same week last year. The gap between the SPP and the APP returned above the 4p threshold, at 4.50p/kg for the same week.

The 30kg weaner price fell for the second consecutive week, by 43p to £43.25 per head, the lowest price since November 2012. Nevertheless, the 7kg piglet price increased by 69p to £32.85 in the same week, ended 17 October, the highest price since the first week in September. The prices for both 30kg and 7kg are behind the same week in 2014, by £7 and £5 per head respectively.

UK breeding herd stable

Provisional figures for the UK pig herd as at June 2015 show a 2% decline in total pig numbers, compared with a year earlier. In contrast, the sow herd was little changed from a year before, suggesting that the overall situation remains broadly stable. Within this, the number of in-pig sows and gilts was slightly higher, as was the number of maiden gilts. The fall in the overall herd was driven by lower numbers of feeding pigs. However, this trend is not supported by slaughtering figures for the four months since the survey date, which show over 125,000 more pigs being processed than in the same period last year. Therefore, the figures should be treated with some caution.

These provisional figures only take account of trends in England and Northern Ireland, following a delay in the publication of Scottish results until later this month. Welsh figures will also not be available until later in the year but will have little impact on the UK totals given the small size of the Welsh herd.

Growth in UK production slows in September

UK pig meat production totalled 70,200 tonnes in September, a 1% increase compared to the same time a year earlier. This was the slowest growth rate recorded since the start of 2014. The total number of clean pigs slaughtered in the UK also recorded only a minimal increase of 1% year on year, to 828,600 head. The small annual growth in slaughterings in September was noticeable across the whole UK. England and Wales recorded a minimal increase of 0.5% while Scotland’s clean pig slaughterings was almost the same a year previously. Northern Ireland recorded the largest increase of slaughterings in September, of 3% year on year. The number of clean pigs killed in the first nine months of 2015 was 4% up on 2014 at 7.8 million head, while UK pig meat production was also up, by 5% year on year to 662,500 tonnes, to the end of September. However, in September, average carcase weights fell by 0.7kg year on year to 81.0kg.

Sow and boar slaughterings in September recorded an 8% increase compared to the same point in 2014, at 20,300 head. This is the fourth consecutive month that cullings have been above the levels seen last year. While it may be that the increase in slaughterings is due to a lower profitability for producers, it could potentially be due to a higher replacement rate of older sows amongst the UK breeding herd. Nevertheless, sow and boar slaughterings for the year to date were down by 1% on the year at 183,100 head.

Feed market update

Nov-15 UK feed wheat futures closed at £112.50/t on Tuesday, £4.50 down on the week. Chicago wheat and maize futures (Dec-15) followed the downward trend. Last week Strategie Grains increased it’s 2015/16 EU wheat production forecast by 2Mt, to a record 149.5Mt, with wheat stocks also revised higher. Defra released more details about UK cereals and oilseeds production on Tuesday, after having delayed this information from the original scheduled publication (15 October) to undertake additional quality assurance checks. Defra’s estimate for UK 2015 wheat production was revised up compared with their earlier release by 42Kt to 16.17Mt, while barley output was revised marginally down by 5Kt to 7.28Mt. The provisional data shows that UK wheat, spring barley and winter barley yields reached new records in 2015.

Chicago soyabean futures prices (Nov-15) closed at $329.19/t on Tuesday, $6.61t down on the week. Nov-15 Paris rapeseed futures were also down but UK rapemeal (34%, ex-mill, Erith) prices increased for the second week running as at Friday, up by £4 week-on-week to £168/t. Brazilian soyameal (48% ex-store, Liverpool), followed the upward trend, up by £3 to £280/t. Hi-pro (ex-store, East Coast) soyameal prices were at £269/t on Friday. In Brazil, one of the top global producers, soyabean crop planting was 13% complete as at 16 October and further rainfall is forecast, which should help plantings progress further.

EU prices remain under pressure

Having recently attempted to push above €150 per 100kg for the fourth time this year, the EU average pig reference price has again fallen back, as there was insufficient demand to justify the higher price at current levels of supply. By week ended 11 October, the average price was back to just over €143 per 100kg, close to the average for the year to date. This is now less than a euro below the price a year ago, the smallest gap since June 2014. Three weeks earlier, the price had reached nearly €149, the second highest quote of the year but, as had happened with previous peaks, this price level couldn’t be sustained. With EU pig supplies remaining relatively plentiful and consumer demand subdued, the market is still pressured. The Russian ban remains firmly in place while some other export markets are cooling, although this is being mitigated by strong demand from China.

While most major producers recorded falling prices over the last month, the drops were most severe in southern member states. For example, Spanish prices dropped by nearly €10 per 100kg in the four weeks to 11 October, while Italian and French quotes were down by €9 and €8 respectively. Further north, prices in Germany were only €4 lower over the same period, while Dutch and Polish ones fell slightly more. However, the overall weakness wasn’t replicated in Denmark, where prices in the latest week were €3 higher than 4 weeks before, although they had stabilised in the more recent weeks.

With UK prices falling recently and a slight strengthening of the euro against the pound, the gap between UK and EU reference prices narrowed slightly, to below €29 per 100kg (21p/kg) in the latest week. While this is a smaller gap than for most of the last year, it remains high by historical standards.

Brazilian exports surge in third quarter of 2015

Brazilian pork exports recorded a sharp increase in the third quarter of 2015, with total exports for the year so far reaching 335,800 tonnes. In the first half of 2015, Brazilian exports dropped below the levels of the previous year. However, high shipments during the third quarter of 2015 resulted in exports for the year to date being ahead by 9%. Over the nine month period, the value of exports recorded an increase 18%, totalling R$2.8 billion. The ongoing depreciation of the Brazilian real had a strong impact on trade during the months of July to September, with total pork exports up by more than a third at 142,000 tonnes. The value of this trade was up 41% in the Brazilian currency, compared with the third quarter of 2014, but down 8% in US dollar terms, showing how the exchange rate has helped make Brazilian pork more price competitive.

The increase in exports was largely driven by Russia, with Brazil continuing to be one of the few countries with access to that market. In the third quarter of 2015, exports increased by 74% as Russia looked to source pork from countries other than the EU, Canada and the US. Hong Kong also recorded increases of Brazilian pork, with an additional 6,100 tonnes coming into the country in the same time period. Whilst trade to Angola remained stable, Singapore recorded a decrease in shipments of 18%. China has become a market for Brazil, albeit a small one so far, with exports for the first nine months of 2015 totalling 2,200 tonnes. Over 80% of this came in the third quarter, with Brazil finally being able to make inroads into this market, which has the potential to expand in the future.